The ABC inventory system is different from activity-based costing. The ABC inventory system is used in order to focus on the most important items in inventory. Usually a relatively few items will account for a very significant value. These relatively few items with great importance are categorized as the “A” items. It is also common for many of the items in inventory to have a relatively small aggregate value. These items are categorized as “C” items. The remaining items are categorized as the “B” items. By closely monitoring the “A” items, a company is able to manage the most important items with a relatively small effort.
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For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
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